Paper money future brighter than coins?

Coins have a bright future. I am confident of that. No field with almost 500 years of literature would simply disappear.

Paper money probably has an even brighter future. That may seem strange, but I began thinking these thoughts after a conversation with Ken Pines of Coast to Coast for Coin Chat Radio. He mentioned that every time he put paper money in his Numismatic News ad, he got a huge response. Why is that? What does it signal for the future of numismatics?

In my 31 years as a numismatic professional, the interest in paper money has greatly increased. The number of paper money collectors is still lower than the number of coin collectors, but the truly high percentage gains have been registered by the paper money participants.

It has gone from almost sleepy backwater of the numismatic field, to a part that is every bit as professional and established as coin collecting.

That is probably due to the law of unintended consequences, which is probably a good thing, because life would be incredibly boring if we knew precisely what the results would be of everything we do from day to day.

Gold bugs have been warning of the risks of hyperinflation. That the U.S. money supply has been growing rapidly in the past year is without question. What will happen as a result is still murky.

Gold bugs expect a greater and greater role for gold. That would favor coins. It might happen.

But if you look at the experience of other countries, what inflation did to them often was to provide a greater and greater role for paper money in their lives.

This intimate acquaintance with printing press money might have made citizens of those countries yearn for gold in their heart of hearts, but in practical terms, what it did over the years was spur demand for paper U.S. dollars. Much of our money supply is held overseas for a rainy day. Poland in recent decades was called the 13th Federal Reserve District.

But that wasn’t the biggest impact of rapid inflation. The biggest impact was to raise new generations of collectors who hardly used coins at all and used paper money instead – even if it was depreciating. Since much of the beginning of collecting is based on personal experience, the idea that the collecting impulse would at first focus on the familiar notes of home is not a surprise – even when those notes are losing their value rapidly.

This was first pointed out to me by a dentist from Brazil almost 20 years ago named Hans Freudenthal.

Brazil went through three currencies in the 1980s. Inflation stalked everyone’s life, yet interest in paper money collecting grew. Stability was eventually restored in the 1990s with yet another new currency. You might think being burned monetarily would have the opposite effect. That it did not seems to indicate that paper money has a bright future in the United States.

Perhaps you will one day be collecting complete sets of $100 bills. This sounds kind of appealing, doesn’t it? It is certainly not what gold bugs have in mind at the moment.

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